SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended March 31, 1996
Commission File No. 0-26590
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
New York 13-3146673
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
770 Lexington Avenue
New York, New York 10021
(Address of Principal (Zip Code)
Executive Officers)
Registrant's telephone number, including area code: (212) 826-2935
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $ 1,027,209.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock as of
July 1, 1996, was approximately $14,905,000.
Number of shares outstanding of the issuer's common stock, as of July 1,
1996 was 3,710,000 .
See Page 42 for Exhibits
1
<PAGE>
PART 1
Item 1. BUSINESS
General
Com/Tech Communications Technologies, Inc. (the "Company" or "Com/Tech")
was incorporated in the State of New York on July 19, 1982 under the name A.C.T.
Advanced Communication Technologies, Inc. The Company was founded by Gregory W.
Harper, the Company's Chief Executive Officer, who is a consultant in the field
of video based communications technology. The Company's clientele encompasses
both large corporations and smaller companies seeking technical solutions to
business communications problems as well as established technology companies
seeking advice with respect to practical application of their technology.
The common link across all of Com/Tech's current business is the creation
and delivery of live interactive video programming instruction and video
conferencing.
To date, the Company has derived a significant amount of its revenues
acting as a subcontractor and derives the bulk of its revenues from three areas:
Private Networks: The Company designs, produces and manages distance
learning and informational video programs for the medical, financial
and insurance communities. Distance learning is sometimes referred
to as "the electronic classroom" and involves the live two-way
transmission of educational curriculum material between a central
studio site and multiple classroom sites at locations around the
country.
Com/Tech Press Tours ("CPT"): The Company produces and transmits
live "satellite press tours" through which media personalities may
be interviewed live by dozens of talk show hosts on TV programs
around the country in a single day with all of the interviews
emanating from the Company's New York studio.
Multi-media Production: Com/Tech provides the facilities and the
expertise to convert standard linear television programs to
interactive television, distance learning curricula, and
site-specific computer-controlled entertainment and advertising
programming.
The Company is currently redirecting its focus to encompass a broader
definition of communications technology. The accelerating pace of video
digitization and the widening range of transmission options is blurring the
lines between data and video transmission. Digitized video is data. It is now
possible to see video on a computer and data on a TV screen. Therefore, the
2
<PAGE>
Company has been seeking new business opportunities which can benefit from its
technical expertise and understanding of the interfaces and interactions of data
transfer and video communications.
Company Background
The Company has been designing, creating and servicing networks for its
clients since 1985. Two [2] of the Company's more significant projects are as
follows:
(1) Private Financial Network
In 1985, the Company was retained to develop a video component for
the New York Society of Security Analysts ("NYSSA"). The Company, in
conjunction with the Private Satellite Network, developed a private
network known as the Institutional Research Network ("IRN") to broadcast
financial presentations of public corporations to institutional investors
in their offices across the country. The IRN, which is now known as The
Private Financial Network ("PFN"), a wholly-owned subsidiary of the
National Broadcasting Corporation ("NBC"), provides financial information
via Personal Computer ("PC") and television to subscribers in the
financial community. Com/Tech has been under contract with PFN to provide
the technical facilities for videotaping on-location interviews with
prominent corporate executives and the regular meetings of the NYSSA. The
video material is made available to PFN subscribers either on demand from
the PFN database or, in the case of conferences, meetings or events, live
via satellite. To accommodate the NYSSA meetings, Com/Tech has equipped a
video production facility at the NYSSA location in the New York City's
World Trade Center with a videotaping package that includes
remote-controlled cameras in the NYSSA meeting room.
The Company's contract with NBC expired on June 30, 1995, but the
Company continued to provide services under the terms of the contract
until the end of 1995. Subsequently, NBC brought this work "in-house." For
the year ended March 31, 1996, the Company derived $281,686 of revenue
from The Private Financial Network, or 27% of the Company's revenue for
that period.
The Company has continued to operate the NYSSA facility for other
clients. Since March, 1996 the Company has been providing downlink and
site management services at the NYSSA facility for IDTN, a distance
learning network operated by Westcott Communications, Inc.
(2) Medical Liability Mutual Insurance Corporation
In 1992, the Company was retained by Peter Larkin Communications
("PLC"), to help produce and actualize interactive video seminars for the
Medical Liability Mutual Insurance Corporation ("MLMIC"). MLMIC, which
insures over 14,000 doctors, is a
3
<PAGE>
physician-owned mutual insurance company that is not only New York State's
largest underwriter of medical liability insurance, but the second largest
underwriter of such insurance in the country. The Company assisted MLMIC
in the design and building of a dedicated video network of 22 sites for
MLMIC, strategically located throughout the State of New York. Through
these sites, MLMIC insured doctors participate in risk- management
courses, which entitle them to significant reductions in their liability
insurance premiums. The Company, in conjunction with PLC, delivers a
series of continuing education programs for physicians on the subject of
medical risk management issues on behalf of MLMIC. Until 1992, these
seminars were provided live by MLMIC at dispersed locations throughout the
US and conducted by a traveling seminar team. Since 1992, MLMIC through
PLC has contracted with Com/Tech to produce and deliver such seminars in a
video format with content provided by PLC, filmed in New York by Com/Tech
and transmitted live by Com/Tech simultaneously to multiple locations in
hospitals and group medical practices, where the attendee physicians may
conveniently be gathered. An interactive capability enables attendees at
any location to ask questions of the host or presenter in Com/Tech's
studio. To date, approximately 8,000 physicians have participated in these
video seminars in New York State. These video seminars have been
successfully received based on anonymous responses. MLMIC offers new
seminars to their constituency every six months, and Com/Tech has provided
technical design, studio production, satellite transmission and other
logistical support for these programs since their inception in 1992. The
Company is paid by MLMIC on a per project basis and such fees have ranged
from $11,889 to $71,021, per project. For the year ended March 31, 1996,
the Company derived $ 263,130 of revenue from MLMIC or 26% of the
Company's revenues for that period.
New Business Objectives
The Company planned to develop a private satellite-based distance learning
network for use by corporations, professionals, organizations and providers of
educational course material to expand the reach of their existing infrastructure
while reducing the cost of delivery to the individual student.
Subsequent to the Company's initial public offering, several factors led
management to redirect the focus of the Company. First, the rapid growth of
corporate networks increased the competition and narrowed the market for
corporate users of private satellite-delivered distance learning networks.
Second, the rapid pace of development in alternative technologies has presented
opportunities to offer similar services using several communication modes,
including fiber optic lines, high speed data lines, the Internet, direct
broadcast satellite, as well as traditional satellite technology. Third, the
cost of satellite time has increased significantly in the past year, making
satellite delivered distance learning applications appropriate for broadcast to
large numbers of sites, but less cost effective than other options for smaller
numbers of sites. Consequently, the
4
<PAGE>
Company has chosen to diversify its new business development, both within the
distance learning field, and within the broader realm of communication
technology.
In the distance learning field, the Company has taken several initiatives.
In January, 1996, the Company concluded an agreement with the New York Society
of Security Analysts for the joint development and delivery through distance
learning technology, of courseware to candidates studying for the CFA (Certified
Financial Analyst) examination. Also, in January, 1996, the Company announced
the formation of the NorthStar Distance Learning Division to spearhead the
Company's current and future distance learning programs.
The Company has been providing interactive satellite-delivered distance
learning services, utilizing existing downlink infrastructure. This has been
deemed more prudent and cost-effective than investing in the construction of a
private downlink network, which had been considered previously. The Company has
also begun a strategic relationship with Westcott Communications, Inc., the
industry leader in private satellite networks. As noted in the discussion of The
Private Financial Network, the Company has been providing Westcott's Interactive
Distance Training Network (IDTN) with site management services at the NYSSA
facility which has allowed IDTN to quickly establish an interactive distance
learning site in Manhattan. Prior to this relationship, IDTN was using a site on
Long Island which was not nearly as convenient or prestigious as the NYSSA
location in the World Trade Center. The Company is currently in negotiation with
IDTN to complete a long term agreement to provide these services.
By not investing in the construction of a private satellite network, the
Company anticipates that it will utilize its resources to pursue the development
of its business through acquisition. This strategy will accelerate the expansion
of Com/Tech's capabilities with the added benefit of immediate revenues. The
Company announced in April, 1996, its intent to purchase Wireless Data Systems,
Inc. (WDS) of Washington, D.C., subject to further negotiation, and to the
satisfactory conclusion of the due diligence process and Board approval.
Additionally the acquisition of WDS is subject to approval by the Federal
Communications Commission (the "FCC").
WDS 1995 revenues include revenues from the origination and transmission
of television feeds for U.S. Government clients including the FAA, the
Department of Defense, The White House, and the U.S. Postal Service, as well as
media clients such as CNN, Dow Jones, Reuters, AT&T, Ameritech, C-Span and the
National Cable Television Association.
WDS owns a satellite teleport and video production studio located at the
Metro Center in Washington, connected by WDS' own fiber optic transmission
network to strategic locations within the Beltway, including The White House,
Capitol Hill hearing rooms, and federal agencies such as the FAA. Their system
is also interconnected with the national fiber systems. WDS also owns a FCC
construction permit for a low power television station (LPTV) to be located in
Baltimore, MD, and has an application pending to move the station to Washington.
5
<PAGE>
The Company believes that the complementary capabilities of the two
companies in the origination and transmission of television programming via
satellite and digital media will yield substantial opportunities for the
enhancement of current services and the development of new business consistent
with Com/Tech's strategic goals. Although it has its own satellite capabilities,
WDS provides the Company with the capability to offer the multiple delivery
options described above, which can provide customers with the most
cost-effective route for the content they are seeking. The Company expects that
synergies resulting from this combination of technical skills and resources will
enable it to provide its customers with a unique set of communication tools to
serve their needs in distance learning, satellite media tours and business
television.
In a move to further broaden and diversify its technological capabilities,
the Company announced in June, 1996, that it had entered into a letter of intent
to acquire Triangle MicroSystems, Inc., a privately-held company, located in
Raleigh, North Carolina, which designs and develops electronic-based control
instrumentation and data transfer systems. The acquisition is subject to further
negotiation, and to the satisfactory conclusion of the due diligence process and
Board approval.
Triangle MicroSystems (TMS), incorporated in 1979, is a profitable
developer of microprocessor-controlled electronic systems for the control and
transfer of both digital and analog data. TMS has developed systems for use in a
range of industries including microprocessor-based electronic gasoline pump
controllers; point-of-sale credit authorization control systems; and state-
of-the-art building environmental controls and automation systems ("smart
buildings").
The Company's management believes that the merging of TMS' electronic
design and development capabilities with the Company's extensive communications
expertise will effectively link the converging worlds of remote data management
and communications to facilitate the movement of digital information for both
video and control systems. The combined resources will yield substantial
opportunities for the development of new business, while the strong revenue and
profitability base of TMS will enhance pursuit of its own strategic goals.
Sales and Marketing
The Company has traditionally derived its revenues from referrals and its
existing client base. A marketing strategy is now being developed for its new
business opportunities which, upon the completion of the aforementioned
acquisitions, will expand the capabilities and the market base of the Company.
The combined resources of the Company's existing operations in New York City and
Wireless Data Services' Washington, D.C. facilities, for example, will greatly
expand the services the Company can offer to clients. It is anticipated that
additional marketing personnel will be hired after the acquisition to implement
marketing and sales strategies for all of the Company's services and products.
6
<PAGE>
The Company has identified a number of potential clients, and plans to
secure their participation through a sales program that will combine direct
marketing efforts with a dedicated sales force. The Company believes that most
clients will utilize both production and network services, and that most will
have reason to use the Company's network on a recurring basis (as has been the
Company's experience). The Company expects that referrals of satisfied past
clients will continue to be one of its most effective marketing tools.
In addition, Com/Tech will build on the success of its satellite press
tour service (CPT) by more aggressive marketing beyond the current base of
publishing and entertainment clients.
Production and Delivery
The Company currently maintains a video production and editing studio,
with satellite transmission capabilities, in New York City. These facilities
have recently been enhanced with new cameras, monitors and videotaping
equipment. The addition of the new equipment has increased the Company's
capacity to provide remote production services to its clients and has reduced
the need for rental equipment to meet specific client needs. The acquisition of
WDS will significantly expand the Company's production delivery capabilities
with the addition of a Washington studio and WDS' satellite and fiber optic
transmission resources.
Satellite Signal
The Company has contracted with Waterfront Communications, which acts as
the Company's agent for the sourcing of satellite transponder capacity for
delivery of the programming signals throughout the continental United States and
Canada. The agreement provides for a term of three (3) years commencing May 1,
1995 at a rate of $800.00 per month plus a per use charge. Through its
arrangement with Waterfront Communications, the Company has the ability to avail
itself of satellite transponder capacity at anytime of the day or night subject
to availability. In the event that a satellite relaying the Company's
programming were to become unavailable, use of another satellite would be
necessary. The Company believes that sufficient satellite availability currently
exists to meet its foreseeable needs should the satellites currently utilized
become unavailable. The addition of WDS will significantly increase the
Company's flexibility in this regard.
Competition
The Company competes with a number of businesses that provide video
production services, satellite-delivered training material, and other video
communications services. The Company expects to encounter intense competition
for these services. Westcott Communications, the industry leader in private
distance learning satellite networks, has far greater resources than the
Company. However, the Company has availed itself of the opportunity to develop a
strategic
7
<PAGE>
relationship with Westcott by providing them with a downlink site in Manhattan
and site management services. The acquisition of WDS will also improve the
Company's competitiveness by creating opportunities to provide new, innovative
services, and greater flexibility in meeting clients' communication needs, as
compared with competitors with significant capital investments in a single
transmission mode, such as satellite delivery. The addition of WDS will also
give the Company a presence in a major new market, Washington, D.C. The
diversification of the Company's business through the acquisition of Triangle
MicroSystems will also add to the Company's ability to compete.
Intellectual Property
The Company currently does not hold any patents on products. However, the
Company intends to file for patent protection for any new technologies or
processes which might be developed as a result of its continuing research and
development efforts.
Employees
As of June, 1996, the Company has 12 full-time employees. Of these, 5 are
responsible for production, 6 administrative and 1 sales. The Company enters
into agreements containing confidentiality restrictions, as well as provisions
of non-competition during employment with the Company. The Company has never had
a work stoppage and no employees are represented by a labor organization. The
Company considers its employee relations to be good.
Item 2. PROPERTIES.
The Company's executive offices and media facilities are located at 770
Lexington Avenue, New York, NY 10021 under a lease expiring December 31, 2001.
The Company leases approximately 5,000 feet of office space at 770 Lexington
Avenue, New York, NY 10021. The lease was entered into in October 1986 and was
extended until January 31, 2001. The lease provides for minimum rent of $105,300
per annum. Additionally, in July, 1995, the Company entered into a
month-to-month lease for further office space at 369 Lexington Avenue, New York,
NY, with MarketLink, a partnership in which the Company's Chairman has an
interest. Currently, the monthly rent is $5,100. The Company believes that these
facilities are adequate to meet its current needs and that suitable additional
or alternative space will be available as needed in the future on commercially
reasonable terms. A significant expansion of the Company's operations would
require the Company to lease or build additional space.
Item 3. LEGAL PROCEEDINGS
There is no material litigation pending or threatened against the Company
nor are there any such proceedings to which the Company is a party.
8
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no matters which have been submitted to a vote of
the Company's security holders.
9
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's securities commenced trading in the over-the-counter market
on the effectiveness of the Company's Initial Public Offering on August 23, 1995
in the form of shares of Common Stock. The Common Stock is regularly quoted and
traded on the NASDAQ system under the symbol CMTK.
The following table indicates the high and low bid prices for the
Company's Common Stock for the period up to July 1, 1996 based upon information
supplied by the NASDAQ system. Prices represent quotations between dealers
without adjustments for retail markups, markdowns or commissions, and may not
represent actual transactions.
Common
Stock
1995 Calendar Year Quoted Bid Price
High Low
August 23, 1995 through
September 30, 1995 11 9 1/2
Fourth Quarter 10 1/4 7 1/4
1996 Calendar Year Quoted Bid Price
High Low
First Quarter 8 5/8 5
Second Quarter 7 3/8 3 3/4
On July 1, 1996 the closing price of the Common Stock as reported on
NASDAQ SmallCap Market was $ 5 1/2. On July 1, 1996 there were 33 holders of
record of Common Stock.
10
<PAGE>
Item 6:
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Overview
The Company initiated operations on July 19, 1982. It has been deriving a
significant amount of its revenues from the provision of video technology
services in several areas of business:
o Private Networks: The Company designs, produces and manages distance learning
and informational video programs for the medical, financial and insurance
communities. Distance learning is sometimes referred to as "the electronic
classrooms" and involves the transmission of educational curriculum material
between a central studio site and multiple classroom sites at locations
around the country. Often these programs offer interactive communications so
that the students can ask questions and otherwise interact with the
instructors.
o Satellite Press Tours: The Company produces and transmits live "satellite
press tours" through which media personalities may be interviewed by talk
show hosts on TV programs around the county with all of the interviews
emanating from the Company's New York studio.
o Multi-Media Production: Com/Tech provides the facilities and the technical
expertise to convert standard linear television programs to interactive
television, distance learning curricula, and site- specific
computer-controlled entertainment and advertising programming.
The Company currently maintains a video production and editing studio with
satellite transmission facilities in New York City.
The Company is in the process of expanding its business opportunities in several
areas with the proceeds of its public offering. In January 1996, the Company
announced the formation of the NorthStar Distance Learning Division, to
spearhead the Company's current and future distance learning programs. One of
its first efforts was the conclusion of a multi-year agreement with the New York
Society of Securities Analysts for the joint development and delivery through
distance learning technology, of courseware to candidates studying for the CFA
[Certified Financial Analyst] examination.
The Company has also been pursuing the acquisition of companies which offer the
potential to enhance strategic goals and shareholder value. The increased focus
on acquisition will provide an opportunity to build the Company's operating base
faster than through internal growth alone. To this end, the Company announced in
April 1996, that it had entered into a letter of intent to acquire Wireless Data
Systems, Inc. ["WDS"] of Washington, D.C., subject to further negotiation and
FCC approval, and to the satisfactory conclusion of the due diligence process
and Board approval. WDS owns facilities in downtown Washington which provide
video production services, satellite transmission, and fiberoptic lines which
offer strategic links to key government clients. WDS also owns an FCC
construction permit for a low powered television station to be located in
Baltimore, MD, and has applied for a permit to move it to Washington. The
complementary capabilities and resources of Com/Tech and WDS offer substantial
opportunities for enhancing current business and developing new business in the
communications technology field.
The Company has also entered into a letter of intent to acquire Triangle
MicroSystems, Inc. ["TMS"], a privately-held company, located in Raleigh, North
Carolina, which designs and develops electronic- based control instrumentation
and data transfer systems. The acquisition is subject to further negotiation,
and to the satisfactory conclusion of the due diligence process and Board
approval. Triangle MicroSystems, incorporated in 1979, is a developer of
microprocessor-controlled electronic systems for the control and transfer of
both digital and analog data. TMS has developed systems for use in various
industries including microprocessor-based electronic gasoline pump controllers;
point of sale/credit authorization control systems; and state-of-the-art
building environmental controls and automation systems ["smart buildings"].
11
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Overview [Continued]
Management believes that the merging of TMS' electronic design and development
capabilities with the Company's extensive communications expertise will
effectively link the converging worlds of data transfer and communications to
facilitate the movement of digital information for both video and control
systems. The combined resources will yield substantial opportunities for the
development of new business opportunities, while the strong revenue and
profitability base of TMS will enhance Com/Tech's pursuit of its own strategic
goals.
On April 27, 1996, the Board of Directors appointed Eugene L. Lewis, the
Company's Chief Operating Officer, to serve as Director and President,
succeeding Peter Wild, who resigned. Mr. Lewis has extensive experience in
corporate management and capital project development in both the public and
private sectors. As Director of Planning for several major engineering
consulting firms, he managed the design and construction of large capital
projects. He also held executive positions in corporate administration,
including Director of Administration at Citizens Utilities Company, an
investor-owned utility. In the public sector, Mr. Lewis served as Manager,
Program Development for the Port Authority of New York and New Jersey, where his
responsibilities included planning and developing information systems for the
Port Authority Bus Terminal. In addition to advancing the Company's new business
opportunities, Mr. Lewis will focus on improving operating efficiency of current
operations and developing capital programs associated with acquisitions such as
Wireless Data Systems and Triangle MicroSystems.
Year ended March 31, 1996 compared to year ended March 31, 1995
Results of Operations
Revenues for the years ended March 31, 1996 and 1995 were approximately
$1,027,000 and $1,318,000 respectively. The reduction in revenues of
approximately $291,000 is primarily attributed to a shortfall in the Company's
Satellite Media Tour and production services revenue sectors, and to a reduced
operating capability at the Company's editing facilities for the first six
months of the current fiscal year due to repairs and equipment upgrade. This
upgrade was completed in September 1995.
The gross profit for the year ended March 31, 1996 was $510,291 or 50% as
compared to $902,958 or 69% for the year ended March 31, 1995 respectively. This
decrease in gross profit is a result of additional costs for rental of equipment
for editing facilities due to the non-operation of the editing facilities for
the first six months of this period and the hiring of a production employee in
August 1995.
Selling expense for the year ended March 31, 1996 and 1995 was $272,844 and
$96,270 an increase of approximately $177,000. This increase was due to
intensified selling activities. Salaries, payroll taxes and benefits increased
approximately $125,000 over the same corresponding period of the prior year.
This increase was due to the addition of new employees. Consulting fees increase
of approximately $111,000 over the corresponding period of the prior year. This
increase was due to the hiring of outside consultants in anticipation of future
revenue growth. Other operating expenses increased approximately $154,000 from
$47,996 for the year ended March 31, 1995 to $201,497 for the current year. This
increase was caused by additional expenditures for temporary manpower,
investors' relations and other expenses incurred with the development of
increasing the Company's revenue base. The Company provided an additional
allowance for bad debts of approximately $101,000 over the prior corresponding
year. Additional expense in professional fees of approximately $54,000 was
caused by additional costs incurred associated with the increased
responsibilities of a publicly held company. In addition, the Company has
non-cash expenses of $330,000 in connection with the common stock issued to
employees and $1,320,000 in financing costs that was incurred in conjunction
with the Bridge Loans received in May of 1995.
12
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Year ended March 31, 1996 compared to year ended March 31, 1995
Results of Operations
Interest expense for the years ended March 31, 1996 and 1995 was $24,425 and
$11,325, respectively. This increase was primarily attributable to an increase
in capitalized lease obligations.
Liquidity and Capital Resources
At March 31, 1996, the Company had working capital of $3,345,287 and cash and
cash equivalents of $3,221,714. The Company utilized $2,352,494 from operations
for the year ended March 31, 1996 as compared to providing $165,337 from
operations in 1995. The Company used $327,515 and $98,672 in investing
activities for the years ended March 31, 1996 and 1995, respectively. The
Company generated $5,847,114 from financing activities which includes the net
proceeds from its public offering of $4,549,988 in the year ended March 31, 1996
as compared to utilizing $16,317 in the corresponding prior year.
The Company has stockholders' equity of $3,804,524 as of March 31, 1996. Should
the Company require additional equity funding, it must first obtain prior
written consent from the underwriter of the public offering. This restriction is
for a period of 24 months after the effective date of the registration
statement, which occurred on August 23, 1995. Consequently, the Company could be
restricted by this underwriting agreement from meeting its liquidity needs.
However, the Company is not prohibited from securing bank financing.
Impact of Inflation
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past periods. Increase in supplies or other operating
costs could adversely affect the Company's operations; however, the Company
believes it could increase prices to offset increases in costs of goods sold or
other operating costs.
Year ended March 31, 1995 compared to year ended March 31, 1994
Results of Operations
Revenue for the years ended March 31, 1995 and 1994 were approximately
$1,318,000 and $1,167,000, respectively. The increase of $151,000 or 13% is
primarily attributable to the management's efforts and increase in revenue from
Private Financial Network, ["PFN"] negated slightly due to the non-operations of
the editorial facilities for the month of January 1995 due to repairs and minor
upgrades.
The gross profit for the year ended March 31, 1995 was $902,958 as compared to
$946,047 for the year ended March 31, 1994. The gross profit percentage decrease
approximately 12.5%. During the year ended March 31, 1994, the Company had a
contract which reimbursed it for direct travel costs. This contract was not
available in 1995. A slight increase of the cost of operations also contributed
to the decline in the gross profit.
Operating expenses for the year ended March 31, 1995 and 1994 were
approximately, $890,000 and $980,000, respectively. The reduction in operating
expenses of approximately $90,000 is mainly attributable to decreases in selling
expense of approximately $39,000, bad debt expense of approximately $78,000,
other operating expenses of approximately $14,000 and professional fees of
approximately $17,000 offset by an increase in salaries, payroll taxes and
benefits of approximately $73,000.
13
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Year ended March 31, 1995 compared to year ended March 31, 1994
Results of Operations [Continued]
Interest expense for the year ended March 31, 1995 and 1994 was $11,325 and
$39,671, respectively. This improvement was primarily attributable to a
reduction of outstanding interest bearing obligations.
The Company's net loss for the year ended March 31, 1995 and 1994 was $1,467 and
$51,613, respectively. This improvement was attributable to a decrease in gross
profit of $43,081 offset by a decrease in operating expenses of $89,589.
Liquidity and Capital Resources
At March 31, 1995, the Company had working capital deficit of $14,635 and cash
and cash equivalents of $54,609. The Company provided $165,337 from operations
for the year ended March 31, 1995. The Company used $98,672 in investing
activities for the year ended March 31, 1995. The Company utilized $16,317 from
investing for the year ended March 31, 1995.
The Company has stockholders' equity was $372,890 as of March 31, 1995 as
compared to $324,357 as of March 31, 1994.
14
<PAGE>
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
Com/Tech Communications Technologies, Inc.
New York, New York
We have audited the accompanying balance sheet of Com/Tech
Communications Technologies, Inc. as of March 31, 1996, and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Com/Tech
Communications Technologies, Inc. as of March 31, 1996, and the result of its
operations and its cash flows for each of the two years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey May 30, 1996 [Except as to Note 12 for which the date is
June 30, 1996]
15
<PAGE>
Item 7:
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
BALANCE SHEET AS OF MARCH 31, 1996.
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 3,221,714
Accounts Receivable - [Net of Allowance of $10,667] 63,078
Loan Receivable - Officer 28,983
Related Party Receivable 265,000
Interest Receivable - Related Parties 25,734
Federal Tax Receivable 3,500
Prepaid Expenses 42,158
Miscellaneous Receivable 15,517
-----------
Total Current Assets 3,665,684
Equipment:
Equipment 1,225,395
Equipment Under Capitalized Leases 131,176
Furniture and Fixtures 15,364
Leasehold Improvements 95,239
-----------
Total - At Cost 1,467,174
Less: Accumulated Depreciation 1,159,337
Equipment - Net 307,837
-----------
Other Assets:
Loan Receivable - Officer 115,931
Deposits 38,080
Deferred Expense - Net 68,333
-----------
Total Other Assets 222,344
Total Assets $ 4,195,865
===========
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
BALANCE SHEET AS OF MARCH 31, 1996.
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 179,566
Current Portion of Capitalized Lease Obligations 32,941
Accrued Expenses 68,311
Accrued Taxes 29,187
Other Payables 10,392
-----------
Total Current Liabilities 320,397
Long-Term Liability:
Capitalized Lease Obligations 70,944
Total Liabilities 391,341
Commitments and Contingencies [6 and 8] --
-----------
Stockholders' Equity:
Common Stock, $.0001 Par Value, 25,000,000 Shares Authorized,
3,710,000 Shares Issued and Outstanding 371
Paid-in Capital 6,596,951
Retained Earnings [Deficit] (2,792,798)
Total Stockholders' Equity 3,804,524
Total Liabilities and Stockholders' Equity $ 4,195,865
===========
See Notes to Financial Statements.
</TABLE>
17
<PAGE>
<TABLE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
Years ended
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Revenues $1,027,209 $ 1,318,433
Cost of Operations 516,918 415,475
---------- -----------
Gross Profit 510,291 902,958
---------- -----------
Operating Expenses:
Selling Expense 272,844 96,270
Salaries, Payroll Taxes and Benefits 600,832 475,442
Compensation of Related Party 135,000 --
Consulting Fee 110,854 --
Depreciation and Amortization 235,236 137,703
Rent and Utilities 98,912 112,370
Other Operating and Administrative Expenses 201,497 47,996
Bad Debt Expense 103,772 3,020
Professional Fees 71,248 17,496
Reimbursed Related Party Expenses 104,405 --
Compensation Expense - Issuance of Stock [9D] 330,000 --
Financing Costs [10] 1,320,000 --
---------- -----------
Total Operating Expenses 3,584,600 890,297
---------- -----------
[Loss] Income from Operations (3,074,309) 12,661
---------- -----------
Other Income [Expense]:
Interest Expense (24,425) (11,325)
Interest Income 144,325 5,724
Gain on Disposal of Equipment 11,332 --
Miscellaneous Income 1,836 --
---------- -----------
Total Other Income [Expense] 133,068 (5,601)
---------- -----------
[Loss] Income Before [Provision] Benefit for Income Taxes(2,941,241) 7,060
[Provision] Benefit for Income Taxes:
Federal 15,343 (16,600)
State (1,606) (17,427)
Deferred 39,500 25,500
---------- -----------
Total [Provision] Benefit for Income Taxes 53,237 (8,527)
---------- -----------
Net [Loss] $(2,888,004) $ (1,467)
=========== ===========
Net [Loss] Income Per Share $ (.89) $ --
========== ===========
Average Number of Shares Outstanding 3,256,301 2,560,000
========== ===========
See Notes to Financial Statements.
18
<PAGE>
</TABLE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Retained Total
Common Stock Paid-in Earnings Stockholders'
Shares Amount Capital [Deficit] Equity
<S> <C> <C> <C> <C> <C>
Balance - April 1, 1994 2,000,000 $ 200 $ 277,484 $ 96,673 $ 374,357
Net [Loss] -- -- -- (1,467) (1,467)
--------- ---------- --------- ---------- ----------
Balance - March 31, 1995 2,000,000 200 277,484 95,206 372,890
May 10, 1995 - Conversion of
Debt to Equity [9A] 60,000 6 119,544 -- 119,550
May 15, 1995 - Issuance of
Stock in Connection with
Bridge Loan [10] 400,000 40 1,319,960 -- 1,320,000
May 17, 1995 - Issuance of
Stock to Employees [9D] 100,000 10 329,990 -- 330,000
August 23, 1995 - Issuance of
1,150,000 Shares of Common
Stock in Public Offering [Net
of Offering Costs of
$1,200,012] [9E] 1,150,000 115 4,549,873 -- 4,549,988
August 29, 1995 - Issuance of
Underwriter's Warrants for
100,000 Shares -- -- 100 -- 100
Net [Loss] for the Year Ended
March 31, 1996 -- -- -- (2,888,004)(2,888,004)
--------- ---------- --------- ---------- ----------
Balance - March 31, 1996 3,710,000 $ 371 $6,596,951 $(2,792,798$3,804,524
========= ========== ========== =====================
See Notes to Financial Statements.
</TABLE>
19
<PAGE>
<TABLE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Years ended
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Operating Activities:
Net [Loss] $(2,888,004) $ (1,467)
----------- -----------
Adjustments to Reconcile Net [Loss] to Net Cash [Used for] Provided by
Operating Activities:
Depreciation and Amortization 235,236 137,703
Provision for Losses on Accounts Receivable 103,772 3,020
[Gain] Loss on Disposal of Fixed Assets (11,332) 6,386
[Decrease] in Deferred Taxes (39,500) (25,500)
Compensation Expense 330,000 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 22,551 47,800
Prepaid Expenses and Other Current Assets (113,877) (11,455)
Interest Receivable (25,734) --
Increase [Decrease] in:
Accounts Payable 74,890 3,557
Taxes Other than Income Taxes 8,432 9,997
Income Taxes (30,100) 33,107
Accrued Liabilities 2,465 (32,821)
Other Payable (21,293) (4,990)
---------- -----------
Total Adjustments 535,510 166,804
---------- -----------
Net Cash - Operating Activities (2,352,494) 165,337
---------- -----------
Investing Activities:
Purchases of Machinery and Equipment (60,103) (100,298)
Deposit (2,412) (5,000)
Loan Advances to Related Party (265,000) (1,635)
Repayment of Loan Advances to Officer -- 8,261
---------- -----------
Net Cash - Investing Activities (327,515) (98,672)
---------- -----------
Financing Activities:
Proceeds from Bridge Loans 400,000 --
Repayment of Bridge Loans (400,000) --
Repayment of Bank Loan -- (12,000)
Repayment of Loan Obligation (22,974) (4,317)
Net Proceeds from Initial Public Offering 4,549,988 --
Exercise of Warrants 100 --
Financing Cost 1,320,000 --
---------- -----------
Net Cash - Financing Activities 5,847,114 (16,317)
---------- -----------
Net Increase in Cash and Cash Equivalents 3,167,105 50,348
Cash and Cash Equivalents - Beginning of Years 54,609 4,261
---------- -----------
Cash and Cash Equivalents - End of Years $3,221,714 $ 54,609
========== ===========
See Notes to Financial Statements.
20
</TABLE>
<PAGE>
<TABLE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Years ended
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 24,425 $ 10,288
State and Federal Income Taxes $ -- $ 15,750
</TABLE>
Supplemental Disclosures of Non-Cash Transactions:
The Company recorded the following non-cash transactions related to the loan
receivable officer:
During June 1994, the Company transferred an automobile with a net book value
of $13,104 to an officer.
During fiscal 1994, an officer paid $50,000 directly to the bank for an
outstanding note.
During fiscal 1994, an officer purchased equipment worth $34,000 for the
Company.
During the year ended March 31, 1995, the Company accrued interest income of
$4,400 on the outstanding principal loan receivable balance.
On May 10, 1995, the Company converted debt of $119,550 into 60,000 shares of
the Company's common stock.
On May 17, 1995, 100,000 shares of the Company's common stock were issued to
employees of the Company. A non-cash compensation expense of $330,000 was
recorded to reflect the fair value of the Company's common stock that was
issued.
On August 11, 1995, the Company exchanged a fixed asset with a net book value
of $13,761 for a final settlement of a purchase contract to Chyron Corporation
for $25,093, which resulted in a gain of $11,332.
The Company expensed $1,320,000 as a non-cash financing cost in conjunction
with the 400,000 shares of stock in connection with the bridge loans received in
May of 1995.
The Company entered into a capital lease obligation for equipment totaling
$52,246.
See Notes to Financial Statements.
21
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
[1] Organization and Business
The Company's business operations consist of production of video and
teleconferencing multi-media services from two locations in the New York
metropolitan area. Com/Tech Communication Technologies, Inc. was incorporated in
the State of New York on July 19, 1982 under the name A.C.T. Advanced
Communication Technologies, Inc. On July 20, 1982, the Certificate of
Incorporation was amended changing the name of the Company to Com/Tech
Communication Technologies, Inc.
[2] Summary of Significant Accounting Policies
[A] Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
[B] Cash Concentration - The Company currently has funds invested in financial
instruments in the amount of approximately $3,200,000 that are subject to credit
risk beyond the insured amounts.
[C] Concentration of Credit Risk - The Company routinely assesses the financial
strength of its customers and based upon factors surrounding the credit risk of
its customers believes, that after providing an allowance for bad debts, its
accounts receivable credit risk is limited.
[D] Equipment - Equipment, furniture and fixtures, and leasehold improvements
are stated at cost. Expenditures for maintenance, repairs and minor renewals are
expensed as incurred. When assets are retired, or otherwise disposed of, the
related cost and accumulated depreciation are removed from their respective
accounts and any profit or loss on such disposition is included in operations.
[E] Depreciation and Amortization - Depreciation is calculated on the
straight-line and declining balance methods to amortize the cost of various
classes of depreciable assets over their estimated useful lives, which is five
years for all classes. During fiscal 1996, the Company reduced its estimate of
the useful lives of its production equipment from ten to five years. This change
had the effect of increasing the net loss for March 31, 1996 by approximately
$93,000 [$.03 loss per share]. Amortization of leasehold improvement is
calculated on the straight-line method over the life of the lease.
[F] Prepaid Expenses - Prepaid expenses are comprised of consulting fees and
insurance premiums.
[G] Deferred Expense -At the close of the public offering, the Company made a
$100,000 payment to the underwriter for future financial services. Amortization
is calculated over a straight-line base over the life of the agreement which is
five years. Amortization expense as of March 31, 1996 was approximately $11,700.
[H] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
[I] Stock Options and Similar Equity Instruments Issued to Employees - The
Company uses the intrinsic value method to recognize compensation expense in
accordance with Accounting Principles Board ["APB"] Opinion No. 25, "Accounting
for Stock Issued to Employees." Under APB Opinion No. 25, compensation expense
for stock based compensation is computed as the excess of the market price of
the stock over the option price on the measurement date.
[J] Revenue Recognition - The Company's policy is to record revenue when
services are performed.
22
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[K] Net [Loss] Per Share - Net [loss] per share was calculated based on the
weighted average number of shares outstanding during the periods presented. In
addition, shares issued prior to the public offering and issued below the
proposed public offering price have been treated as outstanding for all periods
presented.
[L] Reclassification - Certain prior year items have been reclassified to
conform with the current year's presentation.
[M] Business Concentrations - For the year ended March 31, 1996, the Company had
net sales to two [2] customers, one of whom was a significant customer in 1995,
that derived approximately 27% and 26% of net sales. For the year ended March
31, 1995, the Company had net sales to 3 customers that derived approximately
31%, 17% and 11% of net sales.
[3] Related Party Transactions
[A] Loan Receivable Officer - The loan receivable was a demand loan with
interest at 9% per annum to the President of the Company. On March 31, 1995, the
balance of $144,914 was converted to an installment loan with a five-year term
and interest of 9% per annum [See Note 12C].
[B] Stockholder Loan Payable - The Company had a demand loan payable from
December 30, 1987 with interest at 8% per annum. As of March 31, 1995, a total
of $80,000 of principal and accrued interest of $39,550 was due. On May 10,
1995, the Company issued 60,000 shares of common stock for the conversion from
debt to equity for the interest and principal balance of $119,550 [See Note 9A].
[C] Related Party Receivable - The Company in exchange for demand notes advanced
$100,000 on August 15, 1995, $100,000 on October 16, 1995, and an additional
$65,000 on February 2, 1996 to a partnership of which the Company's chairman has
an interest. The demand notes accrue interest quarterly at a rate of 2% above
prime [See Note 12].
[D] Reimbursed Related Party - The following schedule represents expenses which
were reimbursed to a partnership, of which the Chairman has an interest, during
the year ended March 31, 1996 and 1995:
March 31,
1 9 9 6 1 9 9 5
Selling Expense $ 23,830 $ --
Consulting 18,000 --
Rent 53,191 --
Other Expenses 9,384 --
---------- ----------
Totals $ 104,405 $ --
------ ========== ==========
23
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
[4] Capital Lease Obligation
Capital Lease Obligation - The Company is the lessee of certain video production
equipment under capital leases entered into and expiring in various years
through the year 2001. The assets and liabilities under capital lease are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The leased assets are amortized over the related lease
terms. Property held under capital leases included in equipment is $183,412.
Amortization of assets under capital leases is included in depreciation expense
and amounted to $16,613 for the year ended March 31, 1996. Minimum future lease
payments under capital leases as of March 31, 1996, for each of the next five
years and in the aggregate are:
Year ending
March 31,
1997 $ 44,114
1998 37,698
1999 18,453
2000 17,485
2001 8,432
Thereafter --
-----------
Total 126,182
Less: Amount Representing Interest 22,297
Present Value of Minimum Lease Payment 103,885
Less: Current Portion 32,941
Total $ 70,944
----- ===========
Interest rates on capitalized leases vary from 8% to 18% and are imputed based
on the lower of the Company's incremental borrowing rate at the inception of
each lease or the lessor's implicit rate of return.
[5] Income Taxes
The Company has net operating loss carryovers of approximately $2,000,000 as of
March 31, 1996, expiring in the year 2003. However, based upon present Internal
Revenue regulations governing the utilization of net operating loss carryovers
where the corporation has issued substantial additional stock, most of this loss
carryover may not be available to the Company.
Generally accepted accounting principles require the establishment of a deferred
tax asset for all deductible temporary differences and operating loss
carryforwards. However, because of the uncertainty of realization of the
operating loss carryforward, any deferred tax asset established for utilization
of the Company's tax loss carryforwards are estimated to range between $700,000
to $800,000 would correspondingly require a valuation allowance of the same
amount. Accordingly, no deferred tax asset is reflected in these financial
statements.
[6] Litigation
The Company is not involved in any legal proceeding which management believes
would have a material effect on the Company's financial position, operating
results, or cash flows.
24
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
[7] New Authoritative Pronouncement
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of 1995.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. Management
does not believe that the adoption of SFAS No. 121 will have a material impact
on the Company's financial position or results of operations.
The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995. SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity instruments issued to employees as contrasted
to the intrinsic valued based method of accounting prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees." The recognition requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995, and
the Company will adopt the disclosure requirements for fiscal 1997 [as of and
for the year ending March 31, 1997]. SFAS 123 also applies to transactions in
which an entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for based on the fair value
of the consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. This requirement is effective for
transactions entered into after December 15, 1995.
[8] Operating Lease Commitments and Contingencies
Lease - The Company leases its premises under a seven year operating lease,
expiring January 31, 2001. In addition to the minimum rentals, the Company is
also required to pay its share of insurance, utilities and any escalation in
real estate taxes.
Minimum lease obligations are approximately as follows:
Year ending
March 31,
1997 $ 105,300
1998 105,300
1999 105,300
2000 105,300
2001 87,750
Thereafter --
-----------
Total $ 508,950
----- ===========
Rent expense amounted to $139,953 and $100,220 for the years ended March 31,
1996 and 1995, respectively.
[9] Equity
[A] Conversion of Debt to Equity - On May 10, 1995, the Company issued 60,000
shares of common stock for the conversion from debt to equity for the interest
and principal balance of $119,550 [See Note 3B].
25
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------
[9] Equity [Continued]
[B] Amendment to Certificate of Incorporation - On May 11, 1995, the Company
amended its certificate of incorporation to increase the number of authorized
shares of common stock from 200 to 25,000,000 and change the par value from no
par value to $.0001 par value. In addition, the Company authorized 1,000,000
shares of preferred stock.
[C] Stock Split - On May 12, 1995, the Company effected a 10,000 for 1 stock
split of the outstanding shares of common stock of the Company by changing the
200 then outstanding shares of common stock, no par value, into 2,000,000 shares
of common stock of the Company, with $.0001 par value. All share data has been
adjusted to reflect this change.
[D] Equity Transaction - On May 17, 1995, 100,000 shares of the Company's common
stock were issued to employees of the Company. A compensation expense of
approximately $330,000 was incurred in the June 1995 quarter as a result of the
issuance of these shares.
[E] Public Offering - The Company filed a registration statement of 1,000,000
units at $5.00 per unit, which was declared effective in August of 1995. Each
unit consisted of one share of common stock. The Company successfully closed
this public offering with an over allotment of 150,000 units exercised and
received net proceeds of $4,549,988 on August 23, 1995. Bridge notes of $409,293
including accrued interest, underwriting costs of $690,719 and a prepaid
consulting fee of $100,000 were paid at the closing.
[F] Stock Option Plan - The Option Plan provides for issuance of incentive stock
options and non-qualified stock options to key employees. 300,199 options to
purchase restricted shares of common stock, are exercisable at $3.30 per share
until December 31, 1999 and 3,500 options to purchase restricted shares of
common stock are exercisable at $3.75 per share until March 31, 1999, for a
total of 303,699 options outstanding.
[10] Bridge Note Payable
On May 15, 1995, the Company received bridge loans for $400,000 at 8% interest
per annum which were payable May 31, 1996 or upon the successful completion of a
proposed public offering, whichever was earlier. The bridge loans had 400,000
units as additional consideration, with each unit having one share of the
Company's common stock and one Class A warrant. The 400,000 units represent a
financing cost of approximately $1,320,000, the fair value of the units, which
was expensed during the year ended March 31, 1996 based upon a repayment of the
bridge loans in September of 1995.
[11] Fair Value
The carrying amount of cash and cash equivalents, trade receivables and payables
approximate fair value due to their short maturities.
Management believes that the carrying value of the Company's related party
receivables approximates fair value because of the rate of interest being
charged on such receivables.
[12] Subsequent Event
[A] Letter of Intent - On April 5, 1996, the Company entered into a letter of
intent which is subject to FCC approval to acquire a Company which provides
telecommunication services to governmental clientele. In connection with this
acquisition, the Company advanced $50,000 to this entity, which is evidenced by
a secured note. FCC approval is pending.
26
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #6
- ------------------------------------------------------------------------------
[12] Subsequent Event [Continued]
[B] Granting of Options - On April 22, 1996, the Company granted options to
purchase 150,000 shares of restricted common stock for $3.00 per share, which
approximates fair market value. The options are exercisable for a three year
period.
[C] Letter of Intent - On June 6, 1996, the Company entered into a letter of
intent to acquire a developer of microprocessor-controlled electronic systems.
[D] Loan Receivable - Officer - In June of 1996, the Company agreed to convert a
receivable including interest totaling approximately $43,000 from an officer as
a salary distribution for 1996.
[E] Related Party Advances - Through June 26, 1996, the Company advanced an
additional $385,000 to a partnership in which the Company's chairman has an
interest [See Note 3C]. On July 11, 1996, $265,000 plus interest computed to
date was repaid.
[F] Capital Lease - In June 1996 and July 1996, the Company entered into capital
leases for video production equipment. Minimum future lease payments under this
lease aggregate approximately $2,403 per month and expires in 2001.
. . . . . . . . . . . . . . . . .
27
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
EXHIBIT 11 - COMPUTATION OF EARNINGS [LOSS] PER SHARE
- ------------------------------------------------------------------------------
<TABLE>
Years ended
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Average Number of Shares Outstanding 3,256,301 2,000,000
Additional Shares Assumed Outstanding for All Periods Presented:
May 1995:
Shares Issued for Conversion of Debt to Equity -- 60,000
Shares Issued in Connection with Bridge Loans -- 400,000
Shares Issued to Employees -- 100,000
---------- -----------
Average Number of Shares for Computation of Earnings
Income Per Share 3,256,301 2,560,000
========== ===========
Net [Loss] Income $(2,888,004) $ (1,467)
=========== ===========
Earnings [Loss] Per Share $ (.89) $ --
========== ===========
28
</TABLE>
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
29
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT OF THE REGISTRANT
Name Age Position(s) with the Company
Eugene L. Lewis 55 President, Chief Operating Officer and Director
Nancy Shalek 42 Chairman of the Board, Chief Financial Officer,
Secretary and Director
Gregory W. Harper 45 Chief Executive Officer and Director
Gwyeth Smith 52 Director
Background of Executive Officers and Directors
Eugene L. Lewis is the Company's President, Chief Operating Officer, and a
Director. Mr. Lewis has also been the President, Chief Executive Officer, Chief
Financial Officer and a Director of Site Holdings, Inc., a public corporation,
since 1994. Additionally, Mr. Lewis held positions of Supervisor, Management
Analysis, and Manager for Program Development for the Port Authority of New York
and New Jersey from 1988 to 1994 where his responsibilities included planning,
scheduling and environmental analysis for a $600 million dollar bridge
development project, and developing information systems for the Port Authority
Bus Terminal. From 1982-1985 Mr. Lewis was Vice President of Administration at
Robert Landau Associates, Inc., a marketing and communications company, where
his responsibilities involved corporate administration, budgeting and facilities
management. In 1985, Mr. Lewis joined Citizens Utilities Company, an investor
owned utility company as a Director of Administration. In 1986, Mr. Lewis formed
his own management consulting firm and joined the Port Authority of New York and
New Jersey in 1988.
Nancy Shalek is the Chairman of the Board of Directors,Chief Financial Officer,
Secretary and a Director of the Company. She is currently President of On Site
Media which operates the out-of-home television network, NBC ON SITE, a
position she has held since 1992. Previously she
served as Chairman of the Board of Directors of Site Holdings, Inc., a public
corporation and as President of The Shalek Agency, an advertising agency that
she formed in 1988. From 1987 to 1988, Ms. Shalek served as Executive Vice
President and West Coast Director of the W.B. Doner advertising agency. W.B.
Doner acquired Wexler & Shalek, an agency which she co-founded in 1983.
From 1983 through 1987, Ms. Shalek served as the President of Wexler & Shalek.
Prior
30
<PAGE>
to that time,she was employed by the Carnation Company and by the Voit division
of AMF Corporation. Ms. Shalek received national and western "Advertising
Woman of the Year" awards and has lectured at advertising industry
conferences and business schools throughout the country. Ms. Shalek holds
a B.A. from the University of Pennsylvania and an M.B.A. from the University
of Southern California.
Gregory W. Harper is the Chief Executive Officer and a Director of the Company.
Since 1992, he has served as Senior Technology Advisor for ACTV, Inc. a designer
and supplier of interactive television systems for both education and
entertainment, and has two patents pending for his work on interactive distance
learning. He also holds the post of Senior Advisor of Operations and Technology
and is a Director of Advanced Voice Technologies, Inc., a publicly traded
community service educational program. Since 1989, Mr. Harper has concluded a
number of consulting assignments for companies in the new electronic media
field, including the design of a multi- media platform for NBC ON SITE's
in-store advertising system and unique video based system for the remote
arraignment of prisoners for NYNEX. Prior to 1989, through Com/Tech, he produced
TV shows in the United States and Europe, and served as an advisor to a special
cable television commission established by the Prime Minister of France. He has
served as the chairman of the Electronic Industries Association's International
Liaison Committee and served on the U.S. State Department study group for
international technical standards. Prior to founding Com/Tech, Mr. Harper was a
member of the long-range planning group of PBS and a producer for ViaCom.
He is a graduate of Amherst College.
Gwyeth Smith is Chief Executive Officer and President of Advanced Voice
Technologies, Inc., a public corporation, since November, 1995. He is also a
Director of Site Holdings, Inc., also a public corporation. In May 1995, Mr.
Smith also became a director of Com/Tech. Prior to joining Advanced Voice, he
spent 22 years in a variety of senior administrative positions, including acting
principal, for several school districts in the New York area. From 1988 to 1994,
he served as Director of Guidance for the Harborfields School District, a
district of over 2000 students. Mr. Smith has served on the Executive Board for
the New York State Association of College Admissions Counselors, is a frequent
presenter on educational issues for The College Board and the National
Association of College Admissions Counselors, and has published numerous
articles pertaining to relevant issues in education. Mr. Smith holds a B.A. from
Adelphi University and a M.S. in Guidance from Queens College and a professional
diploma from Long Island University in School Administration.
There are no family relationships between the officers and directors of
the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities
31
<PAGE>
of the Company. Officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely upon its review of the copies of
such reports furnished to the Company during the year ended March 31, 1996, all
Section 16(a) filing requirements applicable to its officers and directors and
greater than ten percent beneficial owners were satisfied.
Executive Compensation
Item 10. EXECUTIVE COMPENSATION
The following table provides summary information concerning cash and
certain other compensation paid or accrued by the Company to or on behalf of the
Company's Chief Executive Officer and each of the other most highly compensated
executive officers of the Company whose compensation exceeded $100,000 during
the last two (2) fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
Other All
Annual Restricted Securities Other
Comp- Stock Underlying LTIP Comp-
Salary Bonus ensation Award(s) Options Payouts ensation
Name and Principal PositionYear(b)($)(c)($)(d)($)(e)($)(f)SARs(g) ($)(h) ($)(i)
- ----------------------------------- ----------- ----------- ----------- --
Gregory Harper, CEO. . 1995 -- -- -- -- 163,834 -- --
1996 $135,000 -- -- -- -- -- --
Peter Wild, Pres. . . .1995 $ . -- -- -- -- -- -- --
1996 $96,385 10,000 -- -- 136,365 -- --
Each director of the Company is entitled to receive reimbursement for
reasonable expenses not to exceed $ 150.00 incurred in attending meetings of the
Board of Directors of the Company. The members of the Board of Directors intend
to meet at least quarterly during the Company's fiscal year, and at such other
times duly called.
32
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARSGRANTED TO EMPLOYEES EXERCISE OR BASEEXPIRATION
NAME(A) GRANTED(#)(B) IN FISCAL YEAR(C) PRICE($/SH)(D) DATE(E)
- -------------- ------------- ------------- --------------- ----------------
Peter Wild, Pres. 136,365 97.5% 3.30 December 31, 1999
Employment Agreements
The Company has entered into a three (3) year employment agreement, which
expires March 31, 1998, with Mr. Gregory Harper to serve as the Company's Chief
Executive Officer. The agreement provides for Mr. Harper to receive a salary of
$180,000 per annum. The agreement provides that Mr. Harper devote such time as
is required, but in no event less than one hundred (100) hours per month. The
agreement also provides for payment of a bonus to Mr. Harper, at the sole
discretion of the Board of Directors, and for the issuance of an option to
purchase up to 163,834 shares of non-registered Common Stock, at $3.30 per share
from January 1, 1996 through December 31, 1999.
The Company has also entered into a three (3) year employment agreement,
which expires April 21, 1999, with Eugene L. Lewis to serve as the Company's
President and Chief Operating Officer. The agreement provides for Mr. Lewis to
receive a salary of $150,000 per annum. The agreement also provides for a
payment of a bonus to Mr. Lewis, at the sole discretion of the Board of
Directors and for the issuance of an option to purchase up to 150,000 shares of
non-registered Common Stock, at $3.00 per share from April 22, 1996 through
April 21, 1999.
The Company entered into a three (3) year employment agreement, which
expires June 14, 1998, with Mr. Peter Wild to serve as the Company's President.
The agreement provides for Mr. Wild to receive a salary of $120,000 per annum
and an immediate vesting of irrevocable options to purchase 136,365 shares of
non-registered stock for $3.30 per share. The options expire on December 31,
1999. The agreement also provides for a bonus of $30,000. The bonus is payable
in installments of $10,000 on December 15, April 15 and August 15 of each year
of the agreement.The agreement also provides for an increase in salary and a
bonus upon achievement of certain operating goals. This agreement was terminated
effective July, 1996.
Stock Option Plans
Incentive Option and Stock Appreciation Rights Plan -- As of April, 1995,
the Directors of the Company adopted and the stockholders of the Company
approved the adoption of the Company's 1995 Incentive Stock Option and Stock
Appreciation Rights Plan ("Incentive Option Plan"). The purpose of the Incentive
Option Plan is to enable the Company to encourage key
33
<PAGE>
employees and Directors to contribute to the success of the Company by granting
such employees and Directors incentive stock options ("ISOs") as well as
non-qualified options and stock appreciation rights ("SARs").
The Incentive Option Plan will be administered by the Board of Directors
or a committee appointed by the Board of Directors (the "Committee") which
Committee will consist solely of independent directors (directors who are not
officers or employees of the Company), which will determine, in its discretion,
among other things, the recipients of grants, whether a grant will consist of
ISOs, non-qualified options or SARs or a combination thereof, and the number of
shares to be subject to such options and SARs.
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee not less than the fair market value of the Common Stock on the
date the option is granted. Non-qualified options and freestanding SARs may be
granted with any exercise price. SARs granted in tandem with an option have the
same exercise price as the related option.
The total number of shares with respect to which options and SARs may be
granted under the Incentive Option Plan is 2,000,000. ISOs may not be granted to
an individual to the extent that in the calendar year in which such ISOs first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option or SAR may be granted under
the Incentive Option Plan after April 15, 2005 and no option or SAR may be
outstanding for more than ten years after its grant. Additionally, no option or
SAR can be granted for more than five (5) years to a shareholder owning 10% or
more of the Company's outstanding Common Stock.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock,
or in a combination of both. The Company may lend to the holder of an option
funds sufficient to pay the exercise price, subject to certain limitations. SARs
may be settled, in the Board of Directors' discretion, in cash, Common Stock, or
in a combination of cash and Common Stock. The exercise of SARs cancels the
corresponding number of shares subject to the related option, if any, and the
exercise of an option cancels any associated SARs. Subject to certain
exceptions, options and SARs may be exercised any time up to three months after
termination of the holder's employment.
The Incentive Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
or SARs under the Incentive Option Plan or materially increase the benefits of
participants.
To date no options or SARs have been granted under the Incentive Option
Plan. No determinations have been made regarding the persons to whom options or
SARs will be granted
34
<PAGE>
in the future, the number of shares which will be subject to such options or
SARs or the exercise prices to be fixed with respect to any option or SAR.
Non-Qualified Option Plan -- As of April 1995, the Directors and
stockholders of the Company adopted the 1995 Non-Qualified Stock Option Plan
(the "Non-Qualified Option Plan"). The purpose of the Non-Qualified Option Plan
is to enable the Company to encourage key employees, Directors, consultants,
distributors, professionals and independent contractors to contribute to the
success of the Company by granting such employees, Directors, consultants,
distributors, professionals and independent contractors non-qualified options.
The Non-Qualified Option Plan will be administered by the Board of Directors or
the Committee in the same manner as the Incentive Option Plan.
The Non-Qualified Option Plan provides for the granting of non-qualified
options at such exercise price as may be determined by the Board of Directors,
in its discretion. The total number of shares with respect to which options may
be granted under the Non-Qualified Option Plan is 2,000,000.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock
(based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time up
to three months after termination of the holder's employment.
The Non-Qualified Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the
Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Option Plan or materially increase
the benefits of participants.
35
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of July 1, 1996 with
respect to the beneficial ownership of the outstanding shares of the Company's
Common Stock by (i) any holder of more than five percent (5%) of the outstanding
shares; (ii) the Company's officers and directors; and (iii) the directors and
officers of the Company as a group:
Approximate
Amount and nature of Percent of Class
Beneficial Ownership (1)
Name and Address of
Beneficial Owner
Gregory W. Harper(2) 500,000(3) 13.5
Kathy Harper 500,000(3) 13.5
Gwyeth Smith(2) 0.0 0.0
Nancy Shalek(2) 0.0(4) 0.0
Eugene L. Lewis(2) 0.0(5) 0.0
Nan Silver 200,000 5.4
All officers and directors as a
group (four (4) persons)500,000(3) 13.5
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Instruction (b)(1) to Item 403 of Regulation S-B
of The Securities Exchange Act.
(2) The address of each stockholder shown above is c/o Com/Tech
Communication Technologies, Inc., 770 Lexington Avenue, New York,
NY 10021.
(3) Includes 275,000 shares of Common Stock owned by Gregory W. Harper and
225,000 shares of Common Stock owned by Kathy Harper. Gregory W. Harper
and Kathy Harper are married. Both Gregory W. Harper and Kathy Harper
disclaim beneficial ownership of the other's securities. Does not include
options issued to Gregory W. Harper to purchase 163,834 shares of Common
Stock from January 1, 1996 through December 31, 1999.
(4) Does not include 50,000 shares of Common Stock, and share of Common Stock
issuable upon exercise of Class A Warrants and Class B Warrants held by
James Shalek, Ms. Shalek's husband, to which Ms. Shalek disclaims
beneficial ownership.
(5) Does not include options issued to Eugene L. Lewis to purchase
150,000 shares of Common Stock from April 22, 1996 through April
21, 1999.
36
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 15, 1995, the Company received a bridge loan in the aggregate
amount of $400,000 from 9 unaffiliated and affiliated parties (the "Bridge
Loans"). The proceeds of the Bridge Loans were used for working capital and as a
source of funds to pay expenses associated with this offering. Marketlink Group,
Ltd., an affiliated party which owned 11.7% of the Company's Common Stock, made
a bridge loan to the Company in the amount of $50,000. In addition, James
Shalek, husband of the Company's Chairman of the Board, Secretary and Principal
Accounting Officer, made a bridge loan to the Company in the amount of $50,000.
None of the other bridge lenders were affiliated with the Company. As an
incentive to the making of the bridge loan, the Company issued, relying on the
exemptions provided by Section 4(2) of the Act, for no additional consideration,
an aggregate of 400,000 Bridge Units, each Bridge Unit consisting of One (1)
Share of Common Stock, one (1) Class A Warrant and one (1) Class B Warrant. The
promissory notes issued in connection with the Bridge Loans were due in full
upon the closing date of the first underwritten public offering of the Company's
Securities. The promissory notes paid interest at the rate of eight percent 8%
per annum. The Company incurred a non cash financing cost of approximately
$1,320,000 for the 400,000 units at fair market value which was amortized until
the successful completion of the public offering. The Company believes that the
terms of the bridge loans were as favorable as would have been available from
third parties in arm's length negotiations.
On March 31, 1995, the Company converted an outstanding loan to the
Company's former president into an installment loan in the principal amount of
$144,913. The loan is due in full on March 31, 2000 and carries an interest rate
of 9% per annum.
On May 10, 1995, the Company issued 60,000 shares of its Common Stock to
Nan Silver, a stockholder of the Company, in consideration of the conversion of
certain obligations of the Company to her in the amount of $119,550 relying on
the exemptions provided by Section 4(2) of the Act.
The Company, in exchange for demand notes, advanced $100,000 on August 15,
1995; $100,000 on October 16, 1995 and $65,000 on February 2, 1996 to
MarketLink, a partnership in which the Company's Chairman has an interest. An
additional $385,000 was advanced to MarketLink through June 26, 1996. The demand
notes accrue interest quarterly at a rate of 2% above prime. On July 11, 1996,
$265,000 plus interest to date has been repaid.
In July, 1995, the Company entered into a month-to-month lease with
MarketLink for additional office space located at 369 Lexington Avenue, New
York, New York. Currently, the monthly rent is $5,100.
37
<PAGE>
In August, 1995 the Company entered into a five (5) year Consulting
Agreement with the Company's Underwriter (Sterling Foster & Co.) for an
aggregate amount of $100,000 which was paid upon the closing of the Company's
initial public offering. Pursuant to such agreement the Underwriter has agreed
to provide financial, investment and advisory services to the Company.
38
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 7:
Report of Independent Certified Public Accountants Page 15
Balance sheet as of March 31, 1996 Pages 16 - 17
Statement of operations for the period April 1, 1994 to March 31, Page 18
Statement of stockholders' equity for the period April 1, 1994 to Page 191, 1996
Statement of cash flows for the period April 1, 1994 to March 31, Pages 20 - 21
Notes to financial statements Pages 22 - 27
39
<PAGE>
(a) (2) Exhibits
1.01* Amended Form of Underwriting Agreement.
3.01* Certificate of Incorporation of the Company dated July 19, 1982.
3.02*Certificate of Amendment to the Certificate of Incorporation dated July 21,
1982.
3.03* Certificate of Amendment to the Certificate of Incorporation dated May 11,
1995.
3.04* By-Laws of the Company.
4.01* Specimen Certificate for shares of Common Stock.
4.02* Specimen Certificate for Class A Redeemable Common Stock Purchase
Warrant.
4.03* Form of Warrant Agreement by and among the Company and American
Stock Transfer & Trust Company.
4.04* Form of Underwriter's Warrant Agreement.
5.01* Opinion of Bernstein & Wasserman, counsel to the Company.
10.1* Agreement between the Company and Waterfront Communications
Corporations
10.2* Amended Employment Agreement between the Company and Gregory
Harper
10.3 Employment Agreement between the Company and Eugene L. Lewis.
10.4* Form of Financial Advisory and Investment Banking Agreement
10.5* Form of Agreement between the Company and the Private Financial
Network
10.6* 1995 Incentive Stock Option and Application Rights Plan
10.7* 1995 Non-Qualified Stock Option Plan
11.01* Computation of Earnings [Loss] Per Share
23.01* Consent of Bernstein & Wasserm(to be included in Exhibit 5.01)
* Incorporated by reference to the Company's Registration Statement on
Form SB-2, No.
33-92554
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
By:____________________________
Eugene L. Lewis
President and Chief Operating Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board, July 15, 1996
Nancy Shalek Chief Financial Officer and
Director
Chief Executive Officer July 15, 1996
Gregory W. Harper and Director
Director July 15, 1996
Gwyeth Smith
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
By: /s/ Eugene L. Lewis
Eugene L. Lewis
President and Chief Operating Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
/s/ Nancy Shalek Chairman of the Board, July 15, 1996
- ------------------------------
Nancy Shalek Chief Financial Officer and
Director
/s/ Gregory W. Harper Chief Executive Officer July 15, 1996
- --------------------------------
Gregory W. Harper and Director
/s/ Gwyeth Smith Director July 15, 1996
Gwyeth Smith
42
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ["Agreement"] is entered into as of April
22, 1996 between Com/Tech Communications Technologies, Inc., and Eugene L. Lewis
["Executive"].
1. Employment.
(a) The Company hereby employs Executive, and Executive hereby
accepts employment with the Company, on the terms set forth in this
Agreement. This Agreement shall be for a term commencing on April
22, 1996 and ending on April 21, 1999 unless it is earlier
terminated pursuant to Section 7 hereof.
(b) Executive is hereby employed to serve as the Company's President
and Chief Operating Officer. Executive shall provide senior
management services and shall perform such duties relating thereto
as may be determined and assigned to Executive from time to time by
the Board of Directors, to whom Executive shall report.
(c) During the term of this Agreement, Executive shall devote his
best efforts, knowledge and skill and shall devote substantially all
of his working time and attention to the performance of his duties
as aforesaid, except during such periods as Executive shall be ill,
disabled, or on vacation as provided for by this Agreement.
(d) Executive agrees that, at the request of the Company's Board of
Directors, Executive will also perform services under this Agreement
on behalf of the Company for the Company's direct and indirect
subsidiaries of a nature and scope comparable to the services
required of Executive by this Agreement, including holding such
directorship and offices of the Company's direct and indirect
subsidiaries to which Executive may be appointed.
2. Place of Employment. Executive shall be afforded an office and
support services commensurate with Executive's position as President and
Chief Operating Officers of the Company.
3. Compensation. Executive shall receive a salary of $150,000 per annum.
Executive's salary shall be payable twice each month on the 15th and last day of
each month. The payment of any bonuses shall be at the discretion of the Board
of Directors. Executive's base salary will increase in each successive year of
the contractual period based on the attainment of revenue and profit margin
goals which will be established separately by the Board of Directors. Executive
shall also be granted an option to purchase up to 150,000 shares of Com/Tech's
Common Stock for $3.00 per share at any time on or after April 22, 1996 and on
or before April 21, 1999. The right to purchase such shares shall immediately
vest and become irrevocable upon the execution of this agreement.
4. Vacation. Executive shall be entitled to four weeks of paid vacation
during each calendar
year.
5. Benefits. The Company agrees that Executive shall be entitled to
participate in all executive employee benefit plans and perquisites
maintained or provided by the Company. In particular, and
not by way of limitation of the foregoing, the Company shall:
(a) provide Executive with health and disability insurance commensurate
with Executive's position as President and Chief Operating Officer of the
Company, and,
43
<PAGE>
(b) provide Executive with life insurance in an amount not less than
$500,000, the proceeds of which shall be payable to Executive's estate or
to such beneficiaries as Executive may designate (it being agreed that if
this Agreement shall terminate for any reason Executive shall have the
right to maintain or convert said insurance policy and to thereafter make
all required payments thereon), and,
(c) Put at Executive's disposal a new automobile of not less than the
Lexus class, and shall replace the same at least once every three years if
requested by Executive. Executive will be reimbursed for all expenses of
said automobile including fuel, maintenance and repairs, and insurance.
6. Expenses. The Company shall pay for or reimburse Executive in accordance with
the Company's standard policies for reimbursement of expenses incurred by its
executive officers for all expenses incurred by Executive in performing
Executive's services and carrying out Executive's duties pursuant to this
Agreement.
7. Termination.
(a) This Agreement may be terminated by the Company, acting through its
Board of Directors, only upon any of the following events:
(i) the expiration of 30 days following written notice given by the
Board of Directors of the Company to Executive of the Company's
election to terminate this Agreement following Executive's
Disability (as defined below); (ii) a determination by the Company's
Board of Directors that Cause (as defined below) exists to terminate
this Agreement, and written notice of termination for Cause is given
by the Board of Directors of the Company to Executive; or, (iii) the
death of Executive.
(b) "Disability" means the inability of Executive to perform substantially
all of the duties required of Executive by this Agreement by reason of
physical or mental incapacity for a period of six consecutive months, or a
period of more than 270 days in the aggregate in any 18 month period.
(c) "Cause" shall be limited to:
(i) a material breach by Executive of any material provision of this
Agreement, (ii) fraud or other dishonest act by Executive involving
the Company, or (iii) Executive's conviction of a felony,
provided that in the case of the foregoing clause (i), "Clause" shall
exist only if Executive fails to cure such breach within 30 days of his
receipt of written notice thereof, to the satisfaction of the Company's
Board of Directors, provided that if the Board of Directors (with
Executive abstaining) is unable to reach agreement as to whether such
breach has been cured, the Chairman shall determine whether such breach
has been cured. Nothing contained herein shall limit Executive's rights or
remedies if a court shall determine that Cause did not in fact exist to
terminate this Agreement.
(d) During any period that Executive fails to perform the duties required
of Executive by this Agreement as a result of incapacity due to physical
or mental illness, Executive shall continue to receive the full
compensation provided for by this Agreement without abatement until this
Agreement is terminated in accordance with this Section 7.
44
<PAGE>
(e) In the event of a breach of this Agreement by the Company, Executive
shall not be required to mitigate the amounts of any payments due and
owing to Executive by the Company by seeking other employment or
otherwise, not shall any compensation received by Executive from any other
employment apply or otherwise mitigate any amounts due by the Company to
Executive pursuance to this Agreement.
8. Competition; Confidentiality.
(a) Executive shall not, directly or indirectly:
(i) During the term of this Agreement engage or be interested,
whether as owner, partner, consultant, employee, agent or otherwise,
in any business, activity or enterprise which is in competition with
the Company's business, provided, however, that notwithstanding the
foregoing Executive may own not more than 5% of any class of
security listed on a national securities exchange or traded in the
over-the-counter market; or (ii) neither during the term of this
Agreement or thereafter, except on behalf of the Company in the
regular course of the Company's business, use, divulge, furnish or
make accessible to any third person or organization any confidential
or proprietary information concerning the Company or its business,
except to the extent required by law, and provided that information
now or hereafter in the public domain shall not be deemed
confidential or proprietary information.
(b) Executive acknowledges that inasmuch as the Company will suffer
immediate and irreparable harm in the event he breaches any of his
obligations under this Agreement and inasmuch as the Company will not have
an adequate remedy at law, the Company will, in addition to any other
remedy available at law or in equity, be entitled to temporary,
preliminary and permanent injunctive relief and a decrease for specific
performance of the terms and provisions of this Agreement in the event of
Executive's breach or threatened or attempted breach thereof, without the
necessity of showing any actual damage or posing bond or furnishing other
security.
9. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have
been duly given:
(a) when personally delivered.
(b) on the business day following deposit of such notice with a reputable
overnight courier service or (c) sent by certified mail, return requested,
postage prepaid, as follows:
If to the Company:
Com/Tech Communications Technology, Inc.
770 Lexington Avenue
New York, New York 10021
with a copy to:
Bernstein & Wasserman
950 Third Avenue
New York, New York 10022
Attn: Steven Wasserman, Esq.
45
<PAGE>
If to Executive:
Euguene L. Lewis
2 Sunset Road
Old Greenwich, CT 06870
with a copy to:
Either party may change such party's address for the purpose of this Section 9
by written notice similarly given.
10. Severability. If any provision of this Agreement shall be held to be invalid
or unenforceable, such provision shall be construed and enforced to the extent
possible as if it had been more narrowly drawn so as not to be invalid or
unenforceable, and such invalidity or unenforceability shall not affect or
render invalid or unenforceable any other provision of this Agreement.
11. Entire Agreement. This Agreement sets forth the parties' final and
entire agreement, and supersedes any and all prior understandings,
with respect to the subject matter hereof.
12. Assignment; Ratification of Agreement. No right or obligation under this
Agreement may be assigned or delegated by either the Company or Executive
without the prior written consent of the other party, and any purported
assignment or delegation of any such right or obligation without such consent
shall be null and void.
13. Indemnification. The Company shall indemnify and defend Executive and hold
Executive harmless to the maximum extent permitted by law against claims,
judgments, fines, amounts paid in settlement and reasonable expenses, including
reasonable attorney's fees, incurred by Executive, in connection with the
defense of, or as a result of any action or proceeding (or any appeal from any
action or proceeding) in which Executive is made or is threatened to be made a
party by reason of Executive's acts or omissions in the performance of his
services hereunder if Executive acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, regardless of whether such action or proceeding is one brought by or in
the right of the Company, to procure a judgement in the Company's favor, or
other than by or in the right of the Company, provided that the Company shall
have no obligation to so indemnify Executive if it shall be determined by a
court of competent jurisdiction that Executive's actions were felonies or
illegal activities involving moral turpitude, including, without limitation,
dishonesty, fraud, and other business-related crimes. The rights of Executive
pursuant to this Section 13 shall be in addition to and not in derogation of any
other rights of indemnification, defense, or being held harmless to which
Executive may be entitled pursuant to law or otherwise.
14. No Waiver. No failure or delay by either party in exercising any right,
option, power or privilege hereunder shall operate as a waiver thereof, not
shall any single or partial exercise thereof preclude any other or further
exercise thereof, or the exercise of any other right, option, power or
privilege.
15. Amendment. This Agreement can only be amended, waived or terminated
by a writing signed by both the Company and Executive.
46
<PAGE>
16. Applicable Law. This Agreement shall be governed by and construed and
interpreted in accordance with the internal law of the State of New York,
without reference to its rules as to conflicts of law.
17. Headings. The section headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
Executive The Company
COM/TECH COMMUNICATIONS
TECHNOLOGIES, INC.
By:
Eugene L. Lewis Title:
47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FIANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,221,714
<SECURITIES> 0
<RECEIVABLES> 73,745
<ALLOWANCES> 10,667
<INVENTORY> 0
<CURRENT-ASSETS> 3,665,684
<PP&E> 1,467,174
<DEPRECIATION> 1,159,337
<TOTAL-ASSETS> 4,195,865
<CURRENT-LIABILITIES> 320,397
<BONDS> 0
0
0
<COMMON> 371
<OTHER-SE> 3,804,153
<TOTAL-LIABILITY-AND-EQUITY> 4,195,865
<SALES> 1,027,209
<TOTAL-REVENUES> 1,027,209
<CGS> 516,918
<TOTAL-COSTS> 3,584,600
<OTHER-EXPENSES> (157,493)
<LOSS-PROVISION> 53,237
<INTEREST-EXPENSE> 24,425
<INCOME-PRETAX> (2,941,241)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,888,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,888,004)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.89)
</TABLE>
